Does takeover activity affect stock price crash risk? Evidence from international M&A laws

Balasingham Balachandran, Huu Nhan Duong, Hoang Luong, Lily Nguyen

Research output: Contribution to journalArticleResearchpeer-review

19 Citations (Scopus)

Abstract

We exploit the staggered initiation of merger and acquisition (M&A) laws across countries as a plausibly exogenous shock to the threat of takeover to examine whether the market for corporate control has a real effect on firm-level stock price crash risk. Using a difference-in-differences regression on a large sample of firms from 32 countries, we find that stock price crash risk significantly decreases following the passage of M&A laws. This effect is stronger for firms domiciled in countries with poorer investor protection and information environments and for firms with weaker firm-level governance. Further, financial reporting opacity and overinvestment significantly decrease in the post-M&A law periods. Our study suggests that an active takeover market has a disciplining effect on managerial bad news hoarding and leads to lower future crash risk.

Original languageEnglish
Article number101697
Number of pages22
JournalJournal of Corporate Finance
Volume64
DOIs
Publication statusPublished - Oct 2020

Keywords

  • Bad news hoarding
  • Crash risk
  • Financial reporting opacity
  • International M&a laws
  • Overinvestment

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